I
was at the store today, looking at the seasonal section that is slipping away
from summer to the fall. The firewood is being replaced with Oktoberfest beers;
Halloween candy is rearing its ugly head. The barbecue briquettes are still on
the shelf though. There are different sizes and flavors, and various
accessories hand around them. There is one thing all those bag have in common –
red, white, and blue. Most of those bags show the Kingsford logo. There is one
group of bags on the lower left who just carry the colors without the logo. It
is a store brand. It is priced 30% less than the comparable sized bag of Kingsford
briquettes. I see that display, and it tells me one thing: Kingsford is
barbecue.
In 2001, though, the present
situation may not have been so assured. Barbecuing had been growing at an
awesome rate: the number of times Americans barbecued had more than doubled in
between 1987 and 2000, growing from 1.4 Billion to over 3 billion times (2).
Over that time, Kingsford had enjoyed positive growth between one and three
percent. Within the grilling category, Kingsford’s biggest competition was the
growing use of propane grills, where by 2000 over 54% of US households owned a
grill powered by propane where 49% owned a charcoal grill (5). In terms of
charcoal, though, Kingsford was king. Since at least 1997, they had enjoyed a
majority of the charcoal category. Their biggest competition being private
labels such as I saw in the supermarket today, and a competing brand, Royal
Oak.
Though
Kingsford enjoyed category domination, the activity it supported was maturing,
and the category’s growth was “softening” (1). It had spiked as the economy was
growing, hitting four percent growth in fiscal 1998 and growth had slowed to
two percent to an anticipated loss in 2000 (5). This noted softening is a hit
on the share price for Clorox, the parent company. Especially important to note
is that charcoal represented a higher profit margin than most of the company’s
other brands, since it was nine percent of the revenues, but more than that for
net profits (3). The problem was not within the category. In fact, Kingsford
had become more dominate in the charcoal category over that time. Part of the
reason was that the competing brand, Royal Oak, and the private labels had
increased their prices. This increase made the once 30% discount into a 10%
discount, and made Kingsford an attainable luxury with their higher-quality
product (5). The real competition is the gas grilling. Between 1996 and 2000,
gas grills shipped had increased from 6.5 million to 9.3 million. At the same
time, charcoal grills shipped had stayed relatively flat, going from 5.1 to 5.9
million units shipped (5). This created an imbalance: where once there was
parity between gas and charcoal grills, five percent more households in the US
had gas grills as opposed to charcoal grills in 2000 (15). The brand managers
Marcilie Smith Boyle and Allison Warren had a dilemma on their hands. How do
you get back to that four percent growth and pad Clorox’s bottom line?
What Boyle and Warren need to do is simple
to say – they need to revive the growth that has halved to a more traditional
path of around 4% annual growth without hurting profitability. There is also
not much time to accomplish this achievement, as 11,000 employees of Clorox are
depending on their success (3). I will look at various solutions to bring
Kingsford to this path and then identify what is best based on the evidence
presented in the case study.
The brand managers have identified
four separate areas where they could possibly apply resources to maintain
continued growth in the Kingsford brand. The first area they are looking at is
pricing. Both Royal Oak and the private label brands have increased their
pricing in the last year. The traditional gap between the less premium brands
and Kingsford has shrunk. One option then is to increase pricing to maintain
the gap between the lower and the upper levels (7). There are multiple issues
with that approach though. First off, there has not been an appreciable rise in
company costs, making it so that as noted by Marketing Director Derek Gordon: “We
don’t have a clear justification for a higher price point” (7). The second
issue is that this approach might raise profitability on each bag sold; it has
a chance of decreasing sales and slowing growth. The brand managers countered
that charcoal has a higher elasticity of pricing because it is seen as a “happy
product” (7) which is often an impulse purchase. This allows pricing to
increase since the customers are not as affected by the possibility of a price
rise. My opinion on increasing the pricing is that it is a suboptimal because
it means that it will give back some of the advantage Kingsford has gained over
the competing brands. Its share of charcoal category has grown as pricing has
come closer to parity. If the price is increased, that gain will be lost and
overall profitability will not grow.
A second option looked at is promotion.
This is working with the retail partners so that Kingsford Charcoal is in
stock, customers know it is in stock and is visible within the store. This is a
key part of maintaining Kingsford at the level of sales it is currently at. In
the words of the sales team, “With Kingsford, the key is display – you need to
pile it high and watch it fly” (4). Kingsford works hand in hand with the retailers
for this display, because having Kingsford on hand increases the sales of the
other merchandise by 30% (9). Brand managers on the Kingsford team want to take
advantage of this by extending the traditional grilling season, and keep
growing the number of “grilling occasions” that people take advantage of
outside the summer holidays (9). Looking at trends and food consumption habits,
Kingsford may have a tough row to hoe if this is the platform for growth.
Exhibit 2 on page 13 shows the spikes where consumption peaks in the summer and
goes down in the winter. A full 64% of all US charcoal sales are from May to
September. Wanting to expand beyond these months could be futile since it goes
against habit and against the weather. One noted factor in the softening of the
business in 2000 was the fact that the weather was wetter and colder than
normal towards the last part of the year (6). If you want to expand outside the
normal grilling window in much of the country, you will face the same sort of
weather conditions that hold people back from going outside to grill and are aiming
at growing the number of grilling occasions within a small niche of users.
A final consideration is in looking
at capacity. Though the company runs five plants (3), continued growth is
possible. The plants only run at about 80% capacity, so there is room. The
brand managers do have to know that expansion of the plants or outsourcing of
the manufacturing is possible, but doing so entails additional costs that
challenge the ultimate profitability of the brand even in the face of rising
sales. In the short term, as long as growth does not exceed “5 percent for
several years in a row” (10), then those costs are not a problem. Ultimately, growth
will necessitate expansion, so the two to five years lead time necessary to
build out that expansion should be a factor in the years ahead as the current
plants utilize more of the capacity.
If we, as we have covered, raising prices
could hurt the bottom line and in-store promotion only holds the current
levels, how are we meet the goal of returning the brand to the previous growth?
For me the ultimate answer is to advertise the brand again. Kingsford had not advertised
since 1998 (1), nor has Royal Oak or any of the private labels had any
advertising on the air (6). This lead to a vacuum where there was no message of
charcoal in the air (6). Instead, the main hope was to lead the sales from the
retail store, the so-called “Pile it high and watch it fly” approach (4). The
problem with this approach is that it was not working, and the sales growth had
turned negative. The problem with this need is that the brand managers came to
the brand first off with a warning: “There is no additional money to spend”
(5). A warning like that only reinforces the status quo. Luckily, we learn that
there is a reserve of between five and seven million dollars available in the
Clorox “kitty” the brand managers can apply for to spread their message (8).
To get that money, though, the Boyle
and Warren need a strong message, one that does not muddle the brand as senior
sales executive Grant LaMontagne notes where marketers change the brand image
as they seek greater sales (4). What is that message? For me, it is simple:
Kingsford is Barbecue. No other charcoal
or no other method of grilling surpasses Kingsford. What the message does is
not try to gain market share over other charcoal companies nor wholly increase
the grilling instances, but instead show the superiority of grilling with
briquettes over using gas. Looking at the stats and history show this superiority
to be true. The company invented the briquettes segment almost 100 years ago
(3). Additionally, If you look at the list of reasons that people give for
enjoying grilling which include “great flavor, desire to be outdoors, hanging
out with family and friends, change of pace, easy clean-up, and informality”
(2), the only thing on that list that propane grills have an advantage with is
ease of clean up (2). Grilling is a primal and social activity where we eat
some of our favorite meats – and according to blind taste tests, those meats
taste better with a two to one preference over gas (8). Therefore, what I see
is the problem being is that Clorox and the previous brand managers were being
complacent in the sustained growth. Investing in the brand with this message,
knowing that Kingsford enjoys sector dominance in the charcoal category is a
smart allocation of the available resources. The studies done by the third
party Marketing Management Analytics show that by taking advantage of this
opportunity, Kingsford can grow their brand’s growth by between three and seven
percent (8). Kingsford can no longer ignore the gas grills and enjoy the
dominance over the category rivals. They have to take to the airwaves and
remind the consuming public of one thing: Kingsford is Barbecue.
The biggest worry, of course, is of
outside forces limiting potential growth. Our forecasts have assumed that the
economy of 1995-2000 will remain on the same growth path into the near future.
An additional headwind was looked at earlier. Though the goal is to reignite
growth to the previous path of roughly 4% annualized, our projections have an
upper limit of 7% growth. At that rate, Kingsford would face some costly
decisions about expansion of factory capacity, though for the short term
anything under 5% should be within Clorox’s limits to handle without costly expansion,
which would hit profitability negatively.
Overall, I think the Kingsford brand
has a good opportunity to return to growth and help support the parent company’s
bottom line. By investing in the advertising they are repositioning them
somewhat. Previous advertising focused on competition in the segment and they
were losing out to gas grilling. The gas grill companies had used advertisng of
their own, growing from four to ten million a year in dollars spent (6). The problem
for the gas grillers is that of the points of difference that they can point
to, all they can show a clear advantage is ease of cleaning. In terms of the
social aspect and the change of pace, they are comparable to Kingsford. So that
means Kingsford can use the point of difference of taste to position the brand
as superior to gas. Of the stakeholders, from the brand managers to the director
of marketing, the only person who might be worried about the new direction is
the sales manager who was worried about muddling the message. The problem is that
the previous messages Kingsford had been using were to show points of
difference against their competitors, i.e. Lights
faster, burns longer (8). The new positioning takes for granted Kingsford’s
advantage against those competitors and focuses on the clear and present threat
of the gas grill and sells both the experience and the taste of the meat. Gas
is clean and hygienic but it belongs in the kitchen where you can use it
year-round. If you want a special experience, you use Kingsford, the originator
of Barbecue. The final obstacle I can see here is if the managers of the
advertising “kitty” withhold the funds to invest in the advertising. Without
those resources, the advertising push would be fruitless. However, I feel with
the new angle and the studies from the third-party marketing experts would be
enough to convince the Clorox Company that this is the right investment,
especially when so much is riding on the company returning to profitability.
With nine percent of the company’s sales on a high margin item, Clorox cannot
afford not to invest.
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